POTASH CORP. OF SASKATCHEWAN $21(Toronto symbol POT; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 839.4 million; Market cap: $17.6 billion; Price-to-sales ratio: 3.3; Dividend yield: 6.2%; TSINetwork Rating: Average; www.potashcorp.com) gets 40% of its revenue and 50% of its earnings from potash, followed by nitrogen (35%, 40%) and phosphate (25%, 10%) fertilizers.
Due to weak potash demand and lower prices, the company recently suspended production at its mine in Picadilly, New Brunswick. It started up in early 2015.
Severance and other costs totaled $32 million (all amounts except share price and market cap in U.S. dollars). That’s partly why Potash Corp.’s earnings in the three months ended March 31, 2016, fell 79.7%, to $75 million, or $0.09 a share. A year earlier, it earned $370 million, or $0.44.
Revenue in the quarter also fell 27.4%, to $1.2 billion from $1.7 billion. Potash sales volumes declined 24.1% as prices dropped 37.3%, to $178 a tonne from $284.
As of March 31, 2016, Potash Corp.’s long-term debt totaled $3.7 billion, or 27% of its market cap. It also held cash of $74 million.
To conserve cash, the company plans to spend between $700 million and $800 million on expansions and upgrades in 2016. That’s down $100 million from its earlier forecast.
The outlook for potash prices seems to be improving. India recently agreed to import potash from Belarus at $227 a tonne. While that’s 31.6% below last year’s price of $332, it’s slightly better than the consensus forecast.
As well, potash producers in Belarus and Russia appear ready to re-form the marketing alliance they abandoned in 2013. That would let them limit production and help drive up prices. However, large global inventories will likely limit any short-term price increases.
Potash Corp. expects to earn between $0.60 and $0.80 a share this year. The stock trades at a high 23.1 times the midpoint of that range. Weaker earnings could also put pressure on the company to cut its $1.00 dividend, which yields 6.2%.
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